Price difference between different colours of taxis? Why?

1. Price difference between different colours of taxis? Why?

2. Current market value = HKD 3 millions Current market value = HKD 2 millions Why is there is a difference?

3. Do you think taxi is a kind of capital? YES!!^^ Because taxi can generate services or income over a period of time!! ^^ Actually, it is about the concept of the capital value. In Economics, according to Irving Fisher, anything that can generate services or income over time is regarded as capital, e.g. land, intelligence, education, good look, good health etc. Yale economist 1867-1947

4. Where I = future income r% = interest rate reflecting relevant risk n = number of years How to determine the value of capital? We call the value of a capital the present value of all the future income generated over the span of life of asset. Mathematically, it can be expressed in terms of the following formula.

5. Yes!! Of course!! To calculate the current market value of both urban and NT taxi, is to calculate their relevant present value ?

6. Where I = future income r% = interest rate reflecting relevant risk n = number of years So, what may affect the present value of taxi? • Size of the future income • -higher the future income, higher the PV or vice versa • 2. Length of income stream • -longer the stream, higher the PV or vice versa • 3. Interest Rate • -higher the r%, higher the PV or vice versa

7. What does it mean?? That means the length of the income stream are the same!! So this factor is not affecting the market value of taxi!! In HK, the interest rate is the same everywhere at the same time, so the discounting rate of interest is similar for both taxi. Applying the concept of present value to taxi in Hong Kong: Observation: -Eternal Ownership (永久年期)of taxi-licence for both kind of taxi

8. O…the fare of urban taxi is higher than that of NT taxi! So, the future income should be higher for urban taxi!! So, what makes the difference between the market value of urban taxi-licence and New Territories taxi-licence? Taxi Fare (in HKD $) :

9. Urban taxis have wider area of service coverage than NT taxis! So they have a higher possibility to get customers! Any more for higher market value of urban taxi-licence? Service Area :

10. To conclude the case…… • Size of the future income • -higher the future income, higher the PV or vice versa • 2. Length of income stream • -longer the stream, higher the PV or vice versa • 3. Interest Rate • -higher the r%, higher the PV or vice versa Urban taxis (when compared to NT taxi) -higher taxi fare charged + wider service area coverage -higher future income can be generated -higher PV -higher current market value

11. How about Lantau taxi? Profile : -first 2 kms : $12 -every 0.2 km thereafter :$1.2 -every period of 1 minute waiting time :$1.2 -service area coverage: Lantau Island, the Airport, Hong Kong Disneyland So, I think it is quite easy for us to estimate the market value for Lantau taxi-licence!

12. Anymore thing that the concept of present value may apply? Stock price of Hang Seng Bank vs. DBS, which meant to be higher? Ans. -Hang Seng Bank -larger scale of bank + higher future income -higher PV -higher stock price

13. Why child slaves meant to have a higher selling price? Ans. -younger age -longer life expectancy -longer income stream -higher PV -higher selling price

14. 八兩金 Andy Lau Who is expected to earn more? Ans. -Andy Lau -better appearance -easier to become popular among fans -higher income (more ads, more selling of autographs, more job opportunities) -higher PV

15. Thank You!